Business and commercial bankers constantly look for ways to strengthen the relationships they maintain with their clients. They face the challenge of balancing their client’s needs and desires against bank policies and procedures governing the loans and services provided.

In banking, differentiation of loans and products delivered to clients is often determined by the level of customer service provided. Bankers have discovered introducing outsourced CFOs to their clients as an opportunity to add value and distinguish themselves from their competition.

The primary client and prospect issues most bankers face where an outsourced CFO can assist are:

  • Internal generation of cash is poor which drives higher debt levels
  • Internal resources to produce quality financial and operational forecasts to support increased lending are lacking
  • Inability to recognize signs that lead to breaking loan covenants

The outsourced CFO designs the infrastructure required to address all of the above issues. They become a leader and mentor to the management team, allowing them to draw upon the CFO’s experience in managing effective and successful banking relationships.

The first order of business is to define the connections between margins, working capital requirements and cash flow to sales and net income. Working through this process has numerous benefits, the most important of which is the development of a cash flow forecast. Establishing the cash flow forecast requires the entire management team – sales, operations, procurement and administration – to contribute and understand how their actions affect cash flow.

The outsourced CFO leads this process, which often results in the participants hearing for the first time how their actions have an effect on upstream or downstream activities for the rest of the company. When decision makers have a greater understanding of the consequences of their actions and decisions are no longer made in a vacuum, the outline for improving cash flow and effectively managing working capital requirements begins to take shape.

The creation of improved sales, operational and financial forecasts becomes the foundation of developing the cash flow forecast. Based on the dialogue and greater understanding of how each department operates, sales, financial and operational managers are able to enhance their forecasts.

More importantly, the CFO establishes timely flash reporting of results and meetings of key management people to verify the underlying assumptions used in the forecasts are being achieved. As deviations from the forecasts are identified proactive action is taken to make adjustments to attain the desired results. Being proactive and not reactive to changes in the business generally result in the company managing the business instead of the other way around.

With improved attention to these details, internal cash flow generation improves, lending requirements and the use/repayment of loans become more clearly defined, and most importantly, the banker is provided with high quality supporting documentation that Underwriters can embrace which results in lower risk to the bank.

The common denominator in the entire process is the experience brought to the table by the outsourced CFO. The customer benefits from a stronger balance sheet, improved profitability and internal cash flow generation, becoming more attractive as a customer and business partner to the bank.